XPeng Earnings: Vehicle Margin Still Negative, Expected To Remain Under Pressure

XPeng reported second-quarter revenue above the high end of its guidance. However, vehicle margin of negative 8.6% was much weaker than expected due to price promotions amid industry competition and inventory write-off. With enlarged losses on softer vehicle margin and rising operating expense ratios in the quarter compared with the prior-year period, we increase our 2023-24 net loss forecasts and delay our breakeven year forecast to 2026. As a result, we reduce our fair value estimate to USD 14.50 per ADS (HKD 56 per share) from USD 15.00 (HKD 58), which implies a forward 2024 price/sales ratio of 1.7 times. Shares are in Morningstar 3-star territory and fairly valued, in our view. We suggest investors wait for a better entry point to accumulate XPeng shares.